Its sales up sharply, NutriSystem sets sights on male dieters

Monday, January 30th 2006, 10:04 am
By: News On 6

PHILADELPHIA (AP) _ Nate Griffin, a former Army sergeant, watches what he eats. At one point in his life he even tried juice diets and other products to shed pounds. But ask him whether he'd join a group to talk about weight loss, he cringes.

``To talk about a diet means you're really weak in a certain area. You have no control over it,'' said Griffin, a self-employed personal trainer in suburban Philadelphia. ``It's like saying, 'I need this group to help me beat that.'''

NutriSystem Inc. believes it has the right formula to appeal to men like Griffin who want to lose weight but don't like groups, counting calories or laborious food preparations.

Last week, the Horsham, Pa.-based weight loss company rolled out an advertising campaign geared toward the large but underdeveloped market of male dieters. It's the second act for NutriSystem, a company whose fortunes had acted like the weight of a yo-yo dieter. A makeover four years ago led to soaring sales and profits, but left Wall Street wondering about the next growth driver for the firm _ especially with rivals rolling out their own prepared meals.

NutriSystem believes it's male dieters, a market that hasn't been fully tapped by its biggest rivals. After many focus groups, the company realized that it takes a different approach to get men to diet, compared to women.

That's why the company's ads focus on sports metaphors, confidence and, sometimes, sex.

``Since NutriSystem, my sex life is excellent,'' a male dieter says in one testimonial that claims a loss of 62 pounds.

The company also dangles this lure before men: They can eat pizza, burgers and pasta. NutriSystem's portion-controlled meals come prepackaged and microwavable. There are no group meetings and they can diet at home, privately.

Later this year, the company plans to target seniors by offering foods infused with more vitamins as well as gingko biloba and green tea. NutriSystem also expects to start a marketing campaign in Canada in 2006, with other nations in 2007 or 2008.

``Seventy million people are on a diet _ 20 million are men,'' said Djordje ``George'' Jankovic, NutriSystem's president and chief operating officer. ``It's a huge market.''

Founded in 1972, NutriSystem operated mainly as weight-loss centers where customers purchased packaged meals. In 1990, systemwide sales hit a high of $1.2 billion and the company had over 1,500 centers. But increased competition and mismanagement led to bankruptcy in 1993.

Chicago financier Michael Heisley headed an investment group that bought NutriSystem out of bankruptcy court and took it public again in 1999. He tried to revive the centers, and later attempted to tap the Internet to boost sales, with limited success.

Seeing a fallen star with comeback potential, HJM Holdings LLC, an investment group, and venture capital fund NewSpring Ventures LP, bought a 58 percent stake in NutriSystem for about $10 million, or 62 cents a share, in 2002.

``It was a huge brand, a huge business and a huge opportunity,'' said Michael Hagan, chairman and chief executive of NutriSystem and co-founder of VerticalNet, a one-time Internet high-flier. He had led the now-dissolved HJM Holdings.

The new management team put the company on a diet, closing weight-loss centers and moving the entire business into direct sales to the consumer. The changes saved millions on overhead and personnel.

NutriSystem updated the packaging, improved the quality of its food and began aggressively marketing through television, print ads, the Internet and QVC.

Their pitch: pay for the food and get counseling and group support for free. No membership fees.

Valori Zaslow, a 39-year-old entrepreneur, said she lost 30 pounds over 10 months with NutriSystem. She has kept the weight off for 10 months and is happy to wear a size 10 or 8. She used to be a 16.

``I always wore black to appear thinner and heels to appear taller,'' said the 5-foot-5 Philadelphia resident. ``To be able to wear jeans at a size 10 is the biggest conquest.''

With NutriSystem, the food ``comes to my door. How much easier can it be?'' she said.

People like Zaslow are expected to propel company sales to over $200 million in 2005, up more than 400 percent from 2004. Earnings per share are projected at 58 to 59 cents, up from 3 cents in 2004. NutriSystem will report fourth quarter results on Feb. 21.

The company's stock reflects its vastly improved performance: From about $3 at the start of 2005, shares are now around $47.

Still, it's an uphill battle for market share. NutriSystem wasn't named by dieters in an October survey by The NPD Group, a market research firm in Port Washington, N.Y., because other programs or eating plans had more participants.

Moreover, a report last year on diet programs by Consumer Reports, which didn't include NutriSystem, gave Weight Watchers the highest marks. After a year, followers were far more likely to stick with its plan.

Weight Watchers uses weekly meetings to reinforce its decidedly simple philosophy _ eat less and exercise more.

Scott Devitt, an analyst with Stifel Nicolaus, has a ``hold'' recommendation on NutriSystem due to the stock's fast rise and increased competition in the industry.

Earlier this month, Inc. kicked off a premium food delivery service called FreshCuisine. Jenny Craig Inc., which has gotten heightened interest from dieters after hooking up with actress Kirstie Alley, began its meal delivery service last year.

But David Block, an analyst at The Seidler Cos. in Los Angeles, said even though the stock has soared, there's more growth to come not only from men and seniors but also from international markets.

``People are underestimating their potential,'' Block said.